Understanding Debt Settlement
Having the debt monkey on your back is quite exhausting. Despite the efforts you put into making your minimum payments, your balances just never seem to budge. And when you fall behind on your payment plan and the debt is transferred to a collection agency, you have to deal with the added stress of constant calls and harassment from the collector. If this scenario sounds familiar and you're facing a pile of bills you simply can't pay, then perhaps it's time you tried out a debt settlement program.
Debt settlement is nothing new. It is an age-old process that goes as far back as when credit was first extended. At Gold West Financial, we understand all of it intricacies, laws, and regulations, and we've created this post to show you how you may benefit from a debt settlement. But first, what is debt settlement and how does it work? Let's find out.
What is Debt Settlement?
Debt settlement is a debt repayment strategy where the debtor and creditor come to an agreement to resolve an outstanding debt for a percentage of what is owed. It is also referred to as debt renegotiation because the debtor negotiates with the collector to accept partial payment as full satisfaction for the debt. In exchange, the collector cancels the rest of the debt for good.
As a result, a lot of consumers turn to debt settlement because it offers one of the fastest and cheapest ways of clearing debts without declaring bankruptcy.
How Does the Debt Settlement Process Work?
For most firms, the debt settlement process may vary depending on the debt's status and who initiated the contact for the debt negotiation. There's usually some sort of structured debt settlement plan that would look like the following:
You stop paying your creditors and send payments to a FDIC-insured bank account in your name.
Meanwhile, the debts aren't paid, but rather your FDIC-insured bank account continues to grow.
Over time, the debt becomes delinquent, then the creditor may even charge it off.
The debts charged off by the creditor could be sold to a third party debt collector agency or transferred to an internal collections department.
Then the settlement firm uses the money paid into your FDIC-insured bank account to negotiate a partial settlement of your debt.
3 Reasons Why You May Benefit From Debt Settlement
1. If you're trying to avoid bankruptcy
Avoiding bankruptcy is one of the biggest reasons why people go the way of debt settlement.
According to experts, bankruptcy should only be a last resort. Why? It is a debt solution that'd follow you for the rest of your life. Not just that, it can also hinder future financial opportunities.
If you decide to declare bankruptcy, the court discharges your debts, however, you either lose your assets or the court could decide for a repayment plan for you. After that, you'd be debt-free, but you'd have a damaged credit history on your credit report for 10 years. You could also end up being charged for fraud if you deny you've ever filed bankruptcy in a credit card, loan or job application.
When debt settlement is done right, it can help avoid declaring bankruptcy and the consequences that come with it.
2. If your debt has fallen into default
A recent study carried out by various financial institutions has revealed myriad credit card accounts are already in default. If your debt has fallen into default and you are in a bind about how to pay it off, then the debt settlement route might be your best option. Strike a negotiation with your creditor to allow a part payment of your debt.
3. If you can't pay without a debt reduction
Perhaps at the point of borrowing money, you had the confidence of getting the cash to pay it off. But life doesn't always give us what we expect, and you end up with an income lesser than what you originally expected. This could come in the form of a compromised income or medical emergency. Whatever it is, if you can't afford to pay off your debt without a debt reduction, then you should look towards debt settlement.